Australia Construction Index Expands at Highest on Record

--New Orders, Commercial Activity Highest in 12 Years

     SYDNEY (MNI) - AI Group/Housing Industry Association Performance of

Construction Index (Australian PCI) for July published Monday.

                          July  Change from Previous Month

----------------------------------------------------------

Australian PCI            60.5                        +4.5

Activity - Overall        58.3                        +5.2

Activity - Houses         62.4                        +3.4

Activity - Apartments     52.6                        +4.3

Activity - Commercial     64.3                        +9.8

Activity - Engineering    57.5                        +6.9

New Orders                64.6                        +2.7

Employment                59.0                        +4.8

Deliveries                52.8                        -1.9

Input Prices              73.6                        +7.4

Wages                     64.6                        +3.7

Selling Prices            59.1                        +6.7

Capacity Utilization (%)  77.6                        -3.1

     FACTORS: The construction industry index increased further in July --

rising to its highest in the history of the survey that began in September 2005.

All four subsectors expanded. Growth was led by the commercial and

house-building subsector -- with commercial construction expanding at its

fastest in 12 years and house-building growing at its fastest in 3.5 years.

Apartment building recovered from a contraction in June and engineering rose

owing to to a boost from government infrastructure spending in transport. New

orders expanded at the highest in 12 years led by commercial construction which

saw demand from hotels, offices, aged care and warehousing building. Employment

expanded at the fastest rate in almost three years. Wages rose, input prices

rose and selling prices increased -- indicating businesses can pass on some of

the price increases.

     TAKEAWAY: The expansion in the construction industry poses an upside risk

to the outlook presented by the Reserve Bank of Australia in the Statement on

Monetary Policy last Friday. The RBA said many of the conditions that would

typically be associated with stronger growth in investment are in place --

including low interest rates and high capacity utilization. "Some spillover from

the large pipeline of public infrastructure activity to private sector

investment could also be envisaged. Similarly, the outlook for private

nonresidential construction has improved a little recently with the level of

approvals trending higher."

     COMMENTS: AI Group Head of Policy Peter Burn said the buoyancy of the

sector was evident in levels of current activity and employment growth and

growing order books. "The long-awaited pickup in commercial construction seen

over the past three months is particularly welcome in light of the anticipated

wind-down in apartment building from the very high recent levels and suggests

that the national construction industry will continue to play a leading role in

the economy for some time to come."

     HIA principal economist Tim Reardon said the continuing boom in apartment

construction in metro areas, combined with investment in infrastructure

projects, was ensuring strong conditions across the sector. "The housing

industry has been cooling from record highs in 2016 but there remains a

significant amount of work in the pipeline."

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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